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Often answers just lead to more questions, and the same is true for setting up your business.
Now that you know what your options are, and what the differences are, most people find that the broad differences aren't enough to cement a decision. Not to worry, other successful business owners ask the same questions, and as a rule, when deciding the best business structure you should take into account the following factors:
• Your own personal assets and liabilities
• Your existing capital and need for outside investors
• Your ability to attract outside investors
• State licensing, statutes, and tax requirements
• The time commitment necessary to handle regulations and formalities
• The size, scope, and type of business you're starting
• Startup costs, including licensing and other fees
• Separate you from your business
• Have its own federal tax identification number
• Separate your company's business debt from owners/officers
Of course, each business type does have its own caveats, restrictions, and benefits, depending on the scope and flexibility you wish to incorporate within your model. Below is a case by case look at some of the advantages and disadvantages inherent within each one.
C Corp
Advantages
• Shareholders not personally responsible for the debts and liabilities of the business
• Unlimited number of shareholders
• Ownership is easily transferable through the sale of stock
• Has unlimited life extending beyond the illness or death of the owners
• Additional capital can be raised by selling shares of stocks
• Potential customers may perceive it to be more professional than the other entities.
• Are generally audited less frequently than sole proprietorships
• Certain business expenses may be tax-deductible
• Can result in self-employment tax savings
• May provide a number of income and tax savings
Disadvantages
• Double taxation.
• Regulations must be followed, shareholders may be held liable.
• It's costlier to start then the other business entities.
• It takes more time and effort to maintain.
S Corp
Advantages
• Ease of Formation
• Pass-Through Tax Treatment (Simplicity Reporting).
Disadvantages
• Personal Liability
• Lack of Continuity
• Lack of Investment
LLC
Advantages
• Limited Liability
• Pass-Through Taxation
• Citizenship
• Management Flexibility
• Simple Record keeping
• Deductible Expenses
• Flexible Profit & Loss Allocations
• Nationally Recognized
Disadvantages
• Federal Security Limitations
• Loss of Pass-Through Tax Treatment
• State Tax Treatment
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